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This is why India’s consumer market is a $1 trillion investment opportunity

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The fundamentals of the Indian economy remain strong, as RBI Governor Shaktikanta Das recently stated. India’s growth rate is among the fastest in the world, retail inflation has moderated, buffer food stocks are abundant, forex reserves are substantial, and the current account deficit is expected to remain “well within sustainable levels.”

Domestic consumption is making a strong comeback, traditionally one of the main drivers of India’s economic growth. This is great news for businesses of all sizes. Simply put, when consumers spend more, businesses have more capital to invest in, and increased liquidity throughout the system energises complementary sectors and higher-end goods and services.

But what is the significance of this surge in domestic consumption?

One, as the festive season approaches, these numbers are likely to rise even more. Between August and November, when sales of everything from two-wheelers to real estate are at their peak, Indian consumers tend to spend more. Given how quickly consumption has recovered, the figures for the next three quarters will likely be even better.

Two, for better or worse, demand continues to drive India’s growth story. In a typical fiscal year, private expenditure accounts for approximately 55 per cent of the total national GDP. Furthermore, it has a significant impact on the next major growth driver, Gross Fixed Capital Formation (GFCF), which accounts for the money invested by businesses. As a result, strong domestic consumption translates unintentionally into strong economic growth.

Three, rising household consumption will boost demand for goods and services across industries, especially those involving significant amounts of “discretionary” or luxury spending. Product segments influenced by “premiumisation” trends are included in the latter. These include everything from chocolates and alcoholic beverages to laptops and headphones, as well as clothing and cosmetics. In some categories, such as automobiles, demand for premium products has outpaced demand for entry-level variants. In FY22, for example, premium car sales increased 38 per cent year on year, while lower-priced car sales increased only 7 per cent.

Why is luxury spending increasing in India?

Rising consumer incomes and purchasing power are aiding it: average per capita income has already surpassed USD 2,000 and is expected to exceed USD 12,000 by 2047. Furthermore, the rapid growth of the e-commerce sector and digital transactions has increased customer access to the luxury market. Furthermore, as consumers have become more value- and customisation-oriented, previously dominated by HNWIs, premium segments are rapidly diversifying to include Millennials and non-metro consumers. The typical cohort of HNI and NRI customers has also expanded to include affluent middle-class consumers in some segments, most notably luxury housing, due to the proliferation of remote and hybrid working models.

Furthermore, the premium product space is still in its early stages and remains largely untapped. As a result, market participants have numerous opportunities. For example, while the Indian smartphone market fell by 1 per cent year on year in H1CY22, the premium segment increased by 83 per cent. This segment, however, accounts for only 6 per cent of the total smartphone market.

As domestic consumption continues to rise, premiumisation trends will be boosted across other sectors, from quick-service restaurants (QSRs) and home products to hospitality and healthcare. This has happened before. According to Jun Nie and Andrew Palmer’s paper “Consumer Spending in China: The Past and the Future,” the threefold increase in household spending in China between 2000 and 2015 was accompanied by a sevenfold increase in spending on transportation and communication services.

So, where can investors find investment opportunities?

Discretionary consumption and premiumisation will account for a disproportionate share of growth.

Hospitality and tourism players will benefit from increased air travel, increased demand for top-tier hotels and resorts.

The automotive industry’s clientele for premium car models will become more diverse, especially as the EV revolution gains traction.

The prospects for the entertainment sector are just as promising, with people willing to pay for subscription packages and remain loyal customers even in tier-2 and tier-3 cities as long as there is content worth the money.

Companies in real estate, home-related products, and the FMCG personal care space will also benefit greatly.

The key takeaway is that Indian consumer markets will continue to be a key focus area for global public and private equity investors. Existing and new companies will generate hundreds of billions of dollars in market capitalisation.

To summarise, domestic demand will likely continue to drive India’s economic growth story, which will be increasingly influenced by the discretionary spending of a growing cohort of “premium” consumers. This trend presents an important opportunity for investors to get a head start on a veritable 21st-century gold rush.

(The views expressed in this article are personal and that of the authors. The authors head AltG, a firm that Offers Proprietary Research That Clients Leverage to Identify and Execute High Growth Capital Allocation Opportunities. You can reach them at ideas@altgind.com)

Business

Explained: EPFO overhauls withdrawal rules to boost transparency, ease access for 30 crore members

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New Delhi, Oct 14: The Employees’ Provident Fund Organisation (EPFO) has restructured its partial withdrawal regulations, combining 13 distinct clauses into three main categories: Essential Needs, Housing Needs, and Special Circumstances. This change aims to make it easier to access provident fund savings.

For the nearly 30 crore members who collectively own a corpus of about Rs 30 lakh crore, the reform aims to make the withdrawal process quicker, simpler, and more transparent.

The revised framework, referred to as EPFO 3.0, has standardised withdrawal limits.

Depending on the goal, members can now access up to 100 per cent of their eligible provident fund balance, which includes employer and employee contributions. However, at least 25 per cent of the EPF balance needs to stay in the account in order to maintain a safety net for retirement.

This implies that members can keep the required balance while withdrawing up to 75 per cent of their total corpus.

Additionally, the new regulations standardise the requirements for services. In the past, there were specific requirements for each type of withdrawal, such as five years of service for housing purposes and seven years for marriage-related withdrawals.

All partial withdrawals are now subject to a single 12-month minimum service period, which streamlines the procedure and removes any ambiguity.

Members will no longer need to provide documentation of their withdrawals under the “Special Circumstances” category, which is a significant relaxation. In the past, withdrawals under this heading required proof of emergencies, such as natural disasters or job loss.

The new clause, which permits members to leave without giving a reason, is anticipated to reduce red tape and expedite approvals.

The EPFO has also increased the withdrawal limits for marriage and education-related withdrawals. Instead of the previous cap of three combined withdrawals, members can now make up to 10 withdrawals for education and five for marriage.

Stricter guidelines for final settlements are also introduced by the reforms, though. In contrast to the previous two-month eligibility window, members can now only apply for an early final settlement 12 months after quitting their job and for pension withdrawal 36 months later.

In the event of a job loss, the 25 per cent minimum balance requirement only applies to partial withdrawals; it does not apply to full settlements.

While it is anticipated that the simplified framework will increase efficiency and transparency, workers who are laid off or have experienced extended periods of unemployment may find it difficult to obtain their provident fund savings immediately during a time when they may need it most, due to the revised settlement timelines.

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Silver hits record high above $52.50 as safe-haven demand fuel rally

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Mumbai, Oct 14: Silver prices soared to an all-time high above $52.50 an ounce on Tuesday, boosted by a historic short squeeze in London and strong demand for safe-haven assets amid global economic uncertainty.

Spot silver rose as much as 0.4 per cent to $52.58 an ounce in London, breaking the previous record set in January 1980 when the billionaire Hunt brothers tried to corner the market.

Gold prices also climbed to a new record, marking eight consecutive weeks of gains, supported by rising geopolitical tensions and expectations of US interest rate cuts.

The rally in silver comes amid concerns over liquidity in the London market, which has triggered a worldwide rush to secure the metal.

Prices in London are trading at a rare premium compared to New York, prompting traders to fly silver bars across the Atlantic — a costly move usually reserved for gold — to benefit from higher prices.

The premium stood at around $1.55 an ounce on Tuesday, down from $3 last week.

Adding to the squeeze, silver lease rates in London — the cost of borrowing the metal — surged above 30 per cent for one-month contracts last Friday, making it expensive for traders to maintain short positions.

The situation worsened as strong demand from India in recent weeks further reduced available supply, following earlier shipments to New York amid fears of US tariffs.

Experts said the latest surge in both gold and silver reflects heightened market uncertainty.

Gold prices have jumped nearly 60 per cent this year, crossing the $4,100 mark for the first time, supported by geopolitical tensions, rate-cut expectations, and strong buying by central banks and investors.

Key US economic data such as inflation and retail sales are due later this week, but analysts warn that if the government shutdown continues, the release of these reports — including jobs data — could be delayed.

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Business

Indian stock markets open higher amid global trade concerns, Q2 earnings buzz

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Mumbai, Oct 14: Indian stock markets opened higher on Tuesday as investors looked past global uncertainties caused by the ongoing trade tensions between the US and China, while also tracking quarterly earnings from Indian companies.

The Sensex began the day at 82,562, gaining 235 points or 0.29 per cent. Similarly, the Nifty opened at 25,283, up 55 points or 0.22 per cent.

Among the top performers on the Sensex were HCL Tech, Tech Mahindra, Tata Steel, Infosys, Bharat Electronics, Bajaj Finserv, Ultratech Cement, ICICI Bank, Kotak Mahindra Bank, and Larsen & Toubro, which rose up to 1.3 per cent.

On the other hand, stocks like Eicher Motors, Maruti Suzuki, Axis Bank, Sun Pharma, State Bank of India, Bajaj Finance, and Bharti Airtel witnessed early losses.

In the broader market, both the Nifty MidCap and Nifty SmallCap indices were trading in the green, rising 0.37 per cent and 0.38 per cent, respectively.

Among sectoral indices, the Nifty Metal index led the gains with a 1 per cent rise, supported by positive momentum in metal stocks.

Meanwhile, the Nifty Pharma index was the biggest laggard, slipping 0.37 per cent.

As per the experts, IT stocks, particularly the largecaps, are viewed as overvalued by the market since they are facing many headwinds and some strong structural issues.

“On the other hand PSU stocks have been trading at very low valuations despite decent growth and robust balance sheets. This anomaly in valuations have been corrected by the market. This trend is likely to continue,” market experts said.

‘However, in growth stocks like digital companies and renewable energy, their long-term growth potential will continue to attract investment despite high valuations,” they added.

With Muhurat trading approaching, there is room for a mild rally, according to analysts.

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